Policy makers, led by bank President Rodrigo Vergara, held
the benchmark rate at 5 percent, as forecast by all 17 analysts
surveyed by Bloomberg. The bank last changed borrowing costs in
January 2012 with a quarter-point reduction that surprised
economists.

The central bank board had little reason to change interest
rates as economic growth remains robust and inflation keeps
below the target range, said Sebastian Senzacqua, investment
analyst at Bice Inversiones. Traders in the interest rate swap
market forecast borrowing costs will remain on hold for at least
three months.

“Our base scenario is for rates to remain steady, but we
don’t rule out an increase if inflation advances faster than we
expect,” Senzacqua said by phone from Santiago after the
decision yesterday. “Toward the end of the year, the central
bank could change its bias a little and be a bit more
restrictive.”

Two-year rate swaps, which reflect traders’ views of
average borrowing costs, declined one basis point, or 0.01
percentage point, to 5.22 percent yesterday from the end of last
month. That indicates traders expect the key rate to rise a
quarter-point to 5.25 percent by August, according to
calculations by Banco de Chile.

No Pressure

The central bank is in no rush to raise rates because
inflation has remained below the lower limit of its 2 percent to
4 percent target range for two straight months after starting
last year above the band, Rodrigo Aravena, chief economist at
Banchile Inversiones, said Feb. 11.

Traders and investors surveyed Feb. 12 by the central bank
estimated inflation will accelerate to 3 percent in a year from
1.6 percent in January, staying at the mid-point of the target
range through February 2015.

“We don’t yet see the kind of pressure that would justify
a rate increase,” Aravena said by phone from Santiago. “The
central bank must be sure of several things before it raises the
interest rate. In the first place, it must be sure inflation
projected out two years from now will be above 3 percent.”

At 3.4 percent, Chile has the highest inflation-adjusted
borrowing costs in the world after Ukraine, which has 7.7
percent, and China, at 4 percent, according to data compiled by
Bloomberg. Chile’s real borrowing costs are more than three
times higher than those of Brazil, Latin America’s largest
economy.

Economic Growth

High real interest rates haven’t curbed economic growth.
Unemployment fell to 6.1 percent at the end of 2012 from 6.6
percent a year earlier, while wages climbed 4.7 percent above
inflation in December -- the fastest gain in three years.

Chile’s economy grew 5.45 percent last year, according to
analysts surveyed by Bloomberg, compared with 6.2 percent in
Peru and 1 percent in Brazil.

In December, Chile’s economy expanded a seasonally-adjusted
1.2 percent in the month, the second-fastest rate in 2012, on
gains in retail and services. Internal demand is driving gains,
with retail spending climbing 8.8 percent in 2012 and
supermarket sales rising 7.4 percent.

Raising interest rates to cool that growth would put
pressure on the peso, which has appreciated 2.8 percent against
the U.S. dollar in the past three months, said Alberto Ramos, an
economist at Goldman Sachs Group Inc.

On the other hand, any temptation to reduce borrowing costs
will be tempered by concern that easing monetary policy would
stimulate an economy that doesn’t need an additional boost, he
said.

“There is nothing that looks imminent on the rates front,
unless you see the macro reality shifting,” Ramos said by phone
before yesterday’s decision. “It could shift like that. It’s
not going to stay like this forever.”